ADDRESSING THE TOTAL COST OF HEALTH CARE

Nationally voters rank health care as the top issue. [1][2] If we break down the components of that concern, one area where a good majority of voters are “very concerned” is the total cost of health care.

VERY CONCERNED-Total Health Care Cost

Health care cost have increased to 18% of our Gross National Product[3]

Since 1960 when the cost of health care was a mere 5 percent of our Gross National Product, national health spending has increased to a projected 19.9 percent by 2025. In 2016 it was 17.6 percent. In personal terms (as in how does that impact you?), your yearly bill (out of pocket cost) is now over $10,000 and climbing-Financial Stress![4]

The UNDERINSURED as you may remember are the ones who have health care insurance, but cost is so prohibited that they rarely enter the ballpark and when they do, it is usually the cheap seats. The UNINSURED spend their time in the parking lot and enter the health care ballpark during the 7th inning stretch to see the Emergency room doctor as their rare interface with healthcare. In a future bog I will talk about this segment of our population in more detail. For now, you can see that the financial stress of health care cost impacts not only the uninsured (68 percent go without care due to cost and 51 percent have outstanding medical debt) and underinsured (their numbers aren’t much better at 53 and 45 percent) but those of you with health care insurance as well (31 and 21 percent).

VARIABILTY is the key cost driver

The first key concept here begins with variability. This is yet another example of the tectonic plates at work. Variability, in its simplest definition, means lack of consistency or fixed pattern. In the American healthcare “system” in transition, the variability can be seen in the examples already discussed and those yet to come. Price tags for surgical procedures, for example show a definite variability as well as excessive cost.

VARIATION tells you “how tightly your data is clustered around the mean (the average).” This is called the Standard Deviation (SD). By that I mean, how much in line with the average (cost, access, quality) is the topic under discussion. The larger the SD, the greater the variability. An example of this would be the varying prices charged by providers of healthcare. American Healthcare in Transition is a case study in variability.

SERVICE INTENSITY[6], ADMINISTRATIVE COSTS,[7] and PRICE[8] fuel the VARIABILITY. I talked about service intensity in a previous blog. A snap shot of the variability of price can be seen below.

A Word about Administrative Costs

Then there are those ADMINISTRATIVE COSTS or the cost of doing business in order to make a profit. Those who oversee and insure the variability. When applied to a health insurance company outside of a government agency it can be as high as 18% plus a 3% profit margin. For Medicare by comparison, administrative costs are roughly 2%. The administrative costs for each provider of healthcare is roughly $83,000/physician/year. In case you were wondering how that compares to say Canada, it is roughly four times the administrative cost for each physician on the other side of our northern border. [9]

And we have plenty of administrators.[10] The chart below indicates a 3000 percent explosion of the administrative side of health care since 1970 versus a less dramatic physician increase. [11] In 2013, there were over one million doctors of medicine all over the United States. This figure included some 148,000 inactive and some 44,000 unclassified physicians. Practicing physicians in 2013 were 854, 698. In 1970 there were 310, 845.[12] This represents a 175 percent increase. Not quite the same.

Other sources indicate that administration consumes up to 31 percent of our healthcare dollar.[13] And where does that money go? [14] I modified a table which was initially created in an article written in 1992 by Kenneth Thorpe. It appears to still be relevant today give or take a few modifications. It will serve as a snapshot of administrative expensives for the purpose of our discussion.[15]

A snapshot of the impact of each of these factors would look like this.[16]

Return on Investment

Simply put, the United States has a Health Care “System” that does not get the health status improvement one might expect. To put it bluntly, there is no bang for the buck.

Here is my interpretation of the relationship between COST, QUALITY and ACCESS. In this blog we are discussing cost and access.

ROI is determined by the ability to impact the non-medical drivers of healthcare and access to healthcare. [17]

Non-medical drivers of healthcare

Medical care is relatively less important than are other factors in determining health outcomes for a population. Of the 30 years increase in average US life expectancy since 1900, only about two years are attributable to better medical care. In other words, the non-medical drivers of health care cost are almost all economic, environmental and public health factors.[18]

Access to healthcare

There are two separate groups of patients to be considered. Those without insurance or the UNINSURED. There also exists a group of people who have insurance but can’t or don’t use it due to economic or other considerations. These are the UNDERINSURED. I will return to this tectonic plate in a later blog.

I will discuss the specific areas which drive total health care costs in the next series of blogs until we reach the crescendo of prescription drug prices.

[17] From an idea discussed with David Cook, MD, MPH, FACP, Chief Medical Officer, The Key Family of Companies. Used with permission.

[18] Graph from most referenced article: Tarlov, “Public Policy Frameworks for Improving Population Health” Annals of NY Academy of Sciences, 1999. Numerical values from most recent published article: Park, “Relative Contributions of a Set of Health Factors to Selected Health Outcomes” American Journal of Preventive Medicine, 49(6) 2015. Information from David Cook, MD, MPH, FACP -used by permission.